Research Dept. News
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Monthly Report, num 305 - September 2007
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European Union - Italy
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Italy: modest but praiseworthy pension reform
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Italy’s GDP up 1.8% in second quarter as against earlier 2.3% as result of weak domestic demand.
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The Italian economy continues along the usual paths followed in recent times. The economic situation is maintaining a discreet level but is not depressed, and the Prodi government is trying to take advantage of its narrow margin for political manoeuvre to push forward some reforms that will not substantially affect national balances.
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Modest reform in pensions has more impact on current political scene than any broad effect.
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Looking at the first of these matters, early figures for GDP in the second quarter confirm that Italy is on the course of slowdown that the other large Euro Area economies are also following. After growth of 2.3% year-on-year in the first three months of the year, the rate of economic activity dropped to 1.8% in the second quarter. While details of components are not available, the culprits for this loss of rate, on the demand side, had to be private consumption while, on the supply side, it was industry.
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Household consumption indicators (consumer confidence and retail sales) grew worse in second quarter while starting out from relatively low levels. At the same time, industrial production weakened in the second quarter compared with the preceding quarter. In this context, the only relief came maintenance of the growth rate for inflation at low levels (1.6% year-on-year in July) and from a positive downward trend in unemployment, which put the unemployment rate at 6.2% of the labour force in the first quarter, two decimals less than the figure for the fourth quarter of 2006.
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Given this economic situation and taking into account the fragility of Italy’s coalition government, the attempts of the government led by Romano Prodi to improve some of the structural deficiencies of the country certainly have merit. In spite of being considered insufficient, a recent agreement between the government and the trade unions opens the door to pension reform. This commitment establishes a gradual increase in the retirement age and the minimum number of years making contributions. If the letter of this agreement is met, the minimum retirement age in 2013 will be 61 years as against the present 57 and the number of contributing years will be 36 (35 at present).
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